This past week, taking advantage of the moderate weather, we began our annual exterior survey of our properties a bit earlier than normal. We walk around the exteriors of all the properties to set a prioritized project list for spring/summer 2015.

The neighborhoods we operate in are the near Southside, from just north of National to Cleveland, 1st to 36th.

While the primary focus is reviewing our properties, we also get a good sense of what is happening generally in the neighborhoods.

If this was a rock band I would have called this the “Fresh Mud and New Green Board Tour” It was absolutely surprising how many properties have been bulldozed and how many more properties are boarded and abandoned since doing the fall review in Sept/Oct of last year.

Anyone who tells you the real estate market on the near Southside has or is rebounding from the 2008 housing bubble hasn’t been out much. 😉 I wrote about what I was seeing in the past and again here. It is much worse now.

Many of the new board ups are nice looking properties. However as they accumulate city “reinspection fees” and fines they get to the point they cannot be sold and languish until they are stripped of all value, foreclosed upon by the city for taxes and ultimately razed.

But at least the city was able to tack some fees on it. Fees that they never collected because when the City becomes the owner the only thing left to do was bulldoze them. (The one pictured in the link is now a mud lot). Many of these are Zombie Houses

We are seeing sale prices in Milwaukee that make Detroit almost look like a healthy market.

At that time I predicted the ordinances that had just been passed to make lenders more accountable would actually result in many more properties abandoned by both the owner and the lender.

The city also makes matters worse through reinspection fees. I’m sure they think this is a cash cow, but it is a further cause of the abandonment problem. On the front end these fees force marginal owners into failure and on the back end they make it less likely the lender or owner can sell the property. Banks that control foreclosures in Milwaukee have adopted a policy of not paying taxes until the property sells. When they receive offers they run title prior to accepting offers. Too many fees and they let the property revert to the city.

This was the case with two singles on one lot that I made an offer on a couple of years ago. Bank ran title and rejected the offer due to reinspection fees (the front house was owner occupied, there was a sewer back up that they could not afford to fix and suddenly they were being billed $375 a month) The city then foreclosed on taxes, the property was stripped of metal, druggies used it as a dry place to get high and finally they started the one house on fire, that in turned burned down a neighboring house, taking it off the tax roll too. All along the city has had to mow the yard, shovel the walks, reboard it as it kept getting broken in.

Rothschild, legal director at theWestern Center on Law and Poverty, said the January ruling established that tenants can take owners who acquire properties through foreclosure to state court for violating protections Congress afforded renters under the 2009 Protecting Tenants Against Foreclosure Act. The law doesn’t give renters the right to sue in federal court.

The overly broad decision may lead to a proliferation in lawsuits for breach of the lease imposed upon purchasers at a foreclosure sale. With no prior knowledge, a purchaser at a foreclosure sale now may be burdened with a lease with unlimited combinations of potential contractual obligations ranging from unilateral renewal rights to mandatory substantial improvements to the property.

All of this could make buying an occupied or recently vacated unit a dicey situation.

At our recent monthly meeting [of the Apartment Association of SE WI] Attorney Doug Pessefall presented an overview of the “Recent Trends in Wisconsin’s Property Tax Assessment Process”. Tim Ballering has retained Attorney Pessefall to challenge the City of Milwaukee assessments of sales of foreclosed properties. We all know that there a huge difference between the assessed value of a foreclosed property and its market value reflected in the actual sale. Tim Ballering has a compelling argument that if the property cannot be sold, for cash, at the assessed value, then THE ASSESSED VALUE IS WRONG.

A past member of my church showed up for visit this past Sunday. He is a head assessor in the City of Milwaukee in charge of educating other assessors. I asked him what was the reason for these huge differences in the assessed value of the foreclosed property and the actual market sale of the property.

He replied, ” THESE SALES ARE NOT NORMAL, they are motivated sales. Banks want to get these properties off their books so they are motivated short sell the properties. If the banks would have kept these properties on the market for a longer selling period of time the sale of the property would have met the burden of the assessment.”

This sounded to me like the liberal nonsense of “if we believe it then it is true” regardless of reality. I pursued the conversation further by telling him of a rural farm house I had to bulldoze. We did not initially follow up on a rehabber offer to purchase the house because a member of the family could not bear to have Grandma’s house turned into a rental. The house followed the enviable fate of abandoned property- animal entry, vandalized and KOed by a weather event., but that took two years to occur. I said to him” You know that that process occurs much faster in the City”. He replied, “Yes,I know. When they( foreclosed properties) are heavily vandalized they have no value.” When the City’s plan to sell foreclosed properties to only new first home owners and not to rehabbers does not work,they will beg for bulldozer dollars from the state (taxpayers on the hook) and blame the Governor for not caring about Milwaukee.

Let’s take your (or someone else’) non foreclosed, non vandalized house in the City of Milwaukee. Could you sell it for cash or conventional mortgage for the assessed value? Very unlikely and therefore your assessment is excessive.

Certainly the number of foreclosures has an impact. In fact Milwaukee’s former chief assessor, Peter Weissenfluh, had won an award from the International Association of Assessing Officers for an article he wrote on how foreclosures suppress the value of nearby non foreclosure properties

A former long term board member began a slow process of selling off his properties one at a time using a few different brokers. A smart, knowledgable, diligent guy. All of the properties were well maintained and occupied. He was in no hurry to sell. He was trying his best for top dollar. Of the sales I am aware of the details it appears he received 30-55% of assessed value.

Of the properties I bought in 2012, one third of these properties were not foreclosures and were exposed to the market on MLS for months. I did not know the seller, nor the listing broker. The average price I paid for these was 19.05% of assessed.

The two thirds were indeed foreclosures. None of the foreclosures we purchased seriously vandalized, most had vinyl siding and vinyl windows, with good roofs etc. In general they needed little more than had they been vacated by a three year tenant. Most were ready to rent within a couple weeks. We paid on average 24.95% of assessed value or more than we paid on average for the non foreclosures

The argument made by the city that the banks were in a hurry to sell has a hole in it as many of the foreclosed properties I bought had been listed on MLS for months.

One would expect that a listing such as this would show all sales or have a disclosure that states that it only includes those sales that supports their assessments. But it does not.

In 2011 a total of 33 one and two family properties sold in the 12th District. The average sale price was nearly 35,795 less than assessed. Nearly a$1.2 million less for just 33 sales. Only two of those sold at or slightly above assessed. In 2010 it was 38 sales and an average of 26,943 less than assessed value.

The only areas that sales consistently were sold for assessed or more than assessed were the Eastside and one or two assessment neighborhoods in Bayview. This means the most affluent neighborhoods are being subsidized by owners of lower valued properties.

So again I will state, if you could not sell your property within 90 days for cash or conventional financing at assessed value you are being overcharged.

Realtor Incentive Bill (LRB-3010) – This bill seeks to create an incentive for realtors to sell properties that have a foreclosure judgment and a sale value of less than $50,000. It is our hope that this incentive will attract realtors to invest more time and energy in the foreclosed home markets and neighborhoods. The bill would remove income tax reporting requirements for the commission income made by a realtor working as the agent for either the buyer or seller of the property.

Demolition Bond Bill (LRB-2431) – This bill is designed to ensure that municipalities do not bear the financial burden of demolition of a property when the lender initiates a foreclosure action. The bill would require, as a matter of civil procedure at the time of filing a foreclosure action, that the plaintiff in the matter post a demolition bond of $15,000. The bond will be held by the clerk of courts for the county in which the foreclosure action is filed. In the event that the property is neglected, deteriorates, and becomes a blighted property in need of demolition, the $15,000 demolition bond will be applied for the cost of demolition. In the event that the property is no longer owned by the plaintiff in the foreclosure action, the demolition bond shall be returned to the plaintiff. Similarly, in the event that the foreclosure action is dismissed, the demolition bond shall be returned to the plaintiff.

Security Lighting Bill (LRB-2774) – Under current law, mortgagees may file a foreclosure action against a borrower when the borrower meets certain criteria regarding non-payment. The plaintiff mortgagee in the lawsuit must pay a filing fee with the appropriate county clerk of courts to initiate the lawsuit. In general, these fees are used to pay the operational costs of the court. Under this bill, the filing fee for each foreclosure action is increased by $50.00 with the additional filing fee being routed by the county clerk of courts to the designated department for installation of lighting on existing abandoned homes. The lighting that shall be used shall generate and regenerate its own power through solar energy (as by definition, the existing foreclosed homes do not have electricity running to them). The lighting will help deter theft and vandalism to abandoned properties.

HOME GR/OWN Bill (LRB-2368) – Earlier this year, the City of Milwaukee was a finalist in Former Mayor Bloomberg’s Philanthropies’ Mayors Challenge, which was a competition created to inspire American cities to generate innovative ideas that solve major challenges and improve city life. Milwaukee became one of the top finalists based on the City’s innovative idea to transform foreclosed properties into community assets that improve public health and spark economic opportunity. Unfortunately, Milwaukee was not chosen as one of the recipients of the reward, but we feel this should not deter Wisconsin from pursuing the goals of the challenge.

Property Stabilization Bill (LRB-3431) – Current law does not allow municipalities or lending institutions the authority to enter into a property that is subject to a foreclosure action. When the property is abandoned, this may lead to deterioration of the property, which greatly decreases the property’s resale value and places additional burdens on local property tax payers. This bill seeks to extend authority to a municipality or lending institution to enter the foreclosed property and address any possible problems within the property, such as winterizing the plumbing. This bill also seeks to extend civil immunity to agents of either the municipality or lending institution engaged in the rehabilitation or repair of the property, so far as the agent is acting in his or her official capacity in carrying out actions allowable under this bill.

Something must be done to address this problem. But remember we are at this point because the government at many levels encouraged the purchase of homes by buyers who were ill prepared for homeownership and without the financial resources to weather the smallest of storms. These policies drove sales prices to unsustainable levels. We now pay the price.

At this point many of the vacant foreclosures need to be bulldozed as they have been gutted by thieves looking for a few dollars in copper to buy their next fix.

Rep. Goyke’s proposals, while good for starting a conversation, for the most part are unwise.

I doubt the IRS is on board with the non reporting of commissions.

The demolition bond has the potential of causing far greater problems than it cures. Already today banks are refusing to take possession of foreclosed properties. Many owners believe they were foreclosed upon and moved out only to find the city hunting them down for fines and fees because the banks never took possession. One such case, Bank of New York v. Carson, recently was heard by the Court of Appeals.

We;ve already seen cases where the lender has sued on the note, but as civil cases rather than foreclosures, leaving the title in the buyer’s name along with the liens for mortgages and the court judgments. Mr Goyke’s proposed bond will cause more incentive for banks to do this, creating a larger amount of Zombie housing, i.e. housing that can never be sold due to the liens and title problems.

I do however like the proposal to install solar powered security lights, if they are vandal proof.

Disclaimer

I am "just a landlord," NOT an attorney or accountant. If you need legal advice, tax advice or have appendicitis, don’t rely on something you read on the internet and do it yourself. Rather, hire a competent professional.